Conferences

In 1931 Keynes remarked of a book by Hayek, ‘It is an extraordinary example of how, starting with a mistake, a remorseless logician can end in Bedlam’. If one thinks this through, it tells one all one needs to know about what’s wrong with economics.

Economics is an axiomatic discipline. It proceeds from a very small number of assumptions – maximisation, stable preference, equilibrium - from which can be deduced a very large number of conclusions. These might be considered simply as heuristics – moves to set the argument going. But undoubtedly most economists see them as foundations of their explanations of real world behaviour.

Underlying these operational assumptions is a super-axiom: perfect knowledge. Agents not only know what

How much do people mind the deficit? Do they lie awake at night worrying about it? Do they have nightmares about it?

I tended to dismiss such thoughts as fanciful. Households and businesses, I thought, naturally worried about their own budgets, but not about the government’s budget.

I therefore tended to assume that the government had enough freedom over its own budget to do what it thought best for the country, without coming under undue popular pressure to ‘balance its books’.

Of course there were the ‘markets’. But it didn’t seem to me the markets were putting pressure on our government to ‘balance the books’. After all they have been lending to Treasury long-term at 3% This is historically very low. It does not suggest

In its latest briefing note the IMF warned that world growth would slow in the second half of 2010 and the first half of 2011. Meanwhile the cost of Greek government debt has shot up again, despite the ECB rescue-package, and the IMF will soon inject another 2.5bn euros into the Greek economy. Finally, European trade unions are planning a winter of protest against cuts. These are just the latest glimpses of what is happening in the world economy.

The Causes of the Crisis

The turmoil in the Eurozone was caused by the global crisis that broke out in 2007.The deepest cause of the global crisis was the increasing dominance of the financial system in developed economies, as a result of its liberation from national regulatory controls. As

1. The roots of Russian authoritarianism lie in the country’s climate, geography, years of serfdom and need for a strong government. This legacy is binding.

2. Russia’s relations with its neighbours are bound to be imperial.

3. Russia is not really a ‘European’ country.

4. Russia’s peculiar features are a big obstacle to its modernization.

5. Because of its history, Russia can never be an ‘ordinary’ or ‘normal’ country.

The last proposition subsumes all the others. But they all rest on two suppositions, first, that Russia’s past will determine its future; second, that there is an agreed standard of ‘normality’ to which Russia should conform were it able to.

This is not intended to be a purely historical paper. I am interested in the light the Keynesian and Hayekian interpretations of the Great Depression throw on the causes of the Great Recession of 2007-9 and in the policy relevance of the two positions to the management of today’s globalizing economy. In my recent book, Keynes-The Return of the Master, I committed myself to the view that the present crisis was at root not a failure of character or competence but a failure of ideas, and quoted Keynes to the effect that ‘the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly supposed.

Indeed, the world is ruled by little else’. So any enquiry into policy